Lontex Corp v. Nike Inc
Not yet published in a federal reporter (2024)
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Rule of Law:
A defendant's continued use of a trademark after receiving a cease-and-desist letter and being advised by its own counsel to stop using the mark can constitute sufficient circumstantial evidence for a jury to find willful infringement under the Lanham Act.
Facts:
- In 2008, Lontex Corporation obtained a registered federal trademark for the phrase 'Cool Compression' for use with athletic apparel.
- Lontex sold its 'Cool Compression' products under its 'Sweat it Out' brand to professional sports teams and the general public.
- In 2015, Nike, Inc. began using the words 'Cool' and 'Compression' together in the names of its 'Nike Pro' line of athletic clothing sold online, in catalogs, and described on internal tech sheets.
- In April 2016, Lontex sent a cease-and-desist letter to Nike demanding that it stop using the 'Cool Compression' phrase.
- Following receipt of the letter, Nike's legal department directed its product managers to stop using the phrase 'as soon as possible.'
- Despite the internal directive, Nike continued to use 'Cool Compression' in its product catalogs for over a year and on its internal tech sheets.
- Nike continued to supply products to its third-party retailers without informing them of the trademark dispute with Lontex.
- Approximately two years after the cease-and-desist letter, Nike requested its third-party retailers to stop using 'Compression' in product names, framing it as a change in naming conventions rather than a trademark issue.
Procedural Posture:
- Lontex Corporation sued Nike, Inc. in the U.S. District Court for the Eastern District of Pennsylvania for trademark infringement, contributory infringement, and counterfeiting.
- The District Court granted Nike's motion to dismiss the counterfeiting claim.
- After a trial, a jury found Nike liable for willful infringement and contributory infringement, awarding Lontex $142,000 in compensatory damages and $365,000 in punitive damages.
- In post-trial motions, the District Court trebled the compensatory damages to $426,000 and awarded Lontex nearly $5 million in attorney's fees, finding the case 'exceptional'.
- The District Court denied Nike's motions for judgment as a matter of law and denied Lontex's motion for disgorgement of Nike's profits.
- Nike, as appellant, appealed the judgment, the trebled damages, and the attorney's fees award to the U.S. Court of Appeals for the Third Circuit.
- Lontex, as cross-appellant, appealed the dismissal of its counterfeiting claim and the denial of profit disgorgement.
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Issue:
Does a defendant's continued and incomplete cessation of using a trademark for over a year after receiving a cease-and-desist letter and contrary to its own legal counsel's advice provide a legally sufficient evidentiary basis for a jury to find willful trademark infringement?
Opinions:
Majority - Hardiman, Circuit Judge
Yes, a defendant's continued use of a trademark after receiving a cease-and-desist letter and being advised by its own counsel to stop can constitute willful infringement. Continued use of a trademark contrary to such a letter can establish willfulness if done in bad faith. A defendant's subjective belief is often discerned through circumstantial evidence. Here, a reasonable jury could infer that Nike did not subjectively believe it had a right to use 'Cool Compression' because its own legal department advised the company to stop using it. Despite this advice, Nike continued using the mark in its catalogs for at least a year, failed to remove it from tech sheets, and did not alert third-party retailers of the issue for two years while continuing to supply them. This circumstantial evidence is sufficient to support a jury's inference that Nike, knowing of Lontex's trademark and its own lawyers' advice, intentionally continued its infringing use.
Analysis:
This decision clarifies that 'willfulness' in trademark infringement can be inferred from a defendant's post-notification conduct, specifically a slow and incomplete compliance with its own internal legal advice. It lowers the evidentiary bar for plaintiffs by showing that they do not need 'smoking gun' evidence of intent at the time of the mark's adoption if the defendant's subsequent actions appear unreasonable and in bad faith. The court's remand of the attorney's fees award also significantly reinforces the 'Octane Fitness' standard, holding that a case's 'exceptional' nature cannot be based on general policy considerations like the size disparity between parties (a 'David and Goliath' narrative) but must be tied to specific facts about the substantive strength of a party's position or its unreasonable litigation conduct.
